We are still talking about tips in the area of "billing." Billing is the fourth area of the five areas that make up every business in the world. The other four areas are as follows: "Clients" or "Customers"; "Administration"; "Getting the work done"; and "Collecting."

As I said last week, this week's "tip" with regard to "billing" is to have some type of "monthly productivity report" showing the dollars billed and collected by each biller in your law firm.

I must admit that this concept of having monthly reports of what has been billed and collected is one of my most favorite things to talk about. There is nothing like having a monthly report card on how you and the other people in your law firm are doing with regard to billing and collecting fees. I have repeated over and over that law firm nirvana is a "positive cash flow." I have also stated "you can't manage it if you can't measure it, and you can't measure it if you can't manage it."

I remember when I was first introduced to the concept of knowing what was being billed and collected on a monthly basis. That was back in approximately 1973. Here I am, thirty-two years later, still getting an absolute kick out of what has been billed and collected on a monthly basis by each and every biller in my law firm.

There are billing systems available that will show you this on a monthly basis off of your computer. You'll remember that we used Tabs III for all of our billing in the law firm. We have been with Tabs ever since we began using a computerized billing system back in the late 1970's.

The Tabs III system starts off by coming out with what is called a receipt allocation report. This report shows every biller in the law firm, what has been billed and paid on a particular month and what has been billed and paid for in a particular year. It also shows the overall billing for all lawyers and other billers in the firm as well as each lawyer individually. This is a great way to keep track of who is producing the business for the firm because when the matter is opened, a person is assigned as the responsible party and that person gets the credit for all of the money that comes in on that person's clients. We have a formula in terms of what percentage of those dollars go in to that persons compensation column, and we will be talking about that at a later date.

The next piece of paper we get from Tabs III is a productivity report. This shows the amount of hours that have been billed year-to-date and the amount of money that has been billed by category. In my case, the categories are as follows:

Business

Corporate

Criminal

Domestic

Litigation

Billable Litigation

Contingent

Personal

Probate

Real Estate

Estate Planning

Municipal

As you can see from the above list, our law firm tries to do a little bit of everything. If we are not capable of handling a particular matter, we co-op it with somebody from our "virtual law firm."

One of the reasons that the receipt allocation report is so interesting is that you can go to the bottom line in terms of what has been paid on a year-to-date basis, divided by the number of months that the report is for, then multiply it by twelve and you will get a projection of exactly how much your law firm is going to collect on the year assuming that all things remain equal.

Additionally, an individual lawyer can do the same thing for themselves again by dividing the report by the number of months that the report is for, then multiplying by twelve to see how much they are projected to collect on the year. In our office we have a formula with regard to how much we pay people based upon how much they collect, and again, it's quite simple on a monthly basis to get a projection of what your income is going to be for the year as far as your individual production is concerned.

We are going to discuss this compensation formula at a later date and I think you are going to find it interesting to note that in terms of the percentages, everyone in my law firm from myself to the paralegals are all on the exact same formula.

We have used the productivity report to indicate on our malpractice insurance what percentage of our time is spent in particular areas. Without a report like this, it is just "by guess and by golly." I have found it interesting to note which area of my time seems to be billed out at the highest rate. It is always fascinating to look at what percentage of your time you spend in a particular area and at what rate that time is billed out. Obviously, you want the highest percentage of your time billed out at the highest rate possible and the lowest percentage of your time at the lowest rate possible.

This productivity report concept also tells you the total number of hours you have billed year-to- date, the total amount for those hours and the average rate for the hours. Again, you can take the numbers of hours you have billed, divide it by the number of months for the time period, multiply by twelve and you will see what your projected billable hours are for the year. It is always amazing to me how easy it is to sit down with each and every biller in our office and to discuss with them the amount that they have billed and the categories that they have billed in both percentage wise and the time rate for the same on a monthly basis. There is nothing like the feeling that you are actually doing a good job of managing your law firm.

I find that I spend less than thirty minutes a month looking at these reports and even less time on a monthly basis actually having to talk with people about what is in the reports. Often times, these statistics can be brought up in other types of meetings where they are less threatening to the people you are talking about. In our office, the individuals get their individual statistics, but only the partners get all the statistics for the firm. As the owner of the firm, I share statistics with those people who have a need to know so that they can do a better job of managing the legal assistants they are working with.

I have spoken about the five things it takes to make up every business for quite some time in these articles, and I don't want to overlook the concept that these five things, when done correctly, add up to making a profit. In our capitalistic society, and I use that term with great affection because I am an entrepreneur at heart, making a profit is where it is at. The reason that you look at all of the statistics and the reason you pay attention to the five areas that make up every business is you are making your living operating a legal services business.

Last week was Professionals Day, and at lunch I made the comment to everyone at the table as to how incredibly lucky we were to be able to make a living helping people!

Next week we are going to talk about "monthly hour reports" and how looking at these hour reports helps you manage your firm making it both more efficient and more profitable. I remember the adage: "set your plan, work your plan." This adage is certainly true when it comes to the area of ours. I think you will find some of my comments with regard to hours very enlightening with regard to your own practice.

Talk to you next week!

Jim Wirken is a civil trial attorney and the Chairman of the Board of The Wirken Law Group in Kansas City.